Pound Sterling to Euro (GBP/EUR) Exchange Rate Slumps as Bank of England (BoE) Officials Hint at Rate Cuts

Pound to Euro Exchange Rate Falls to January Lows on Bank of England Comments

Last week saw mixed movement in the Pound Sterling to Euro (GBP/EUR) exchange rate. At the end of the week investors were generally positive on the Pound (GBP) outlook. but weekend Bank of England (BoE) comments increasingly weigh on the British currency.

After opening last week at the interbank level of 1.17, GBP/EUR trended higher throughout the week. GBP/EUR briefly touched on highs of 1.18, but ultimately only ended the week modestly above opening levels.

This week, reaction to weekend comments from BoE officials has immediately dragged GBP/EUR lower. At the time of writing on Monday, GBP/EUR is trending in the interbank region of 1.16 – the pair’s worst levels since December.

Demand for the Euro (EUR) is limited. However as the Pound outlook worsens, the shared currency is easily pushing the Pound to Euro exchange rate lower today.

Pound (GBP) Exchange Rates Hit by Dovish Bank of England (BoE) Officials

For much of last week, the Pound (GBP) found support in a hopes for a smooth Brexit process this year. It was further supported by hopes that Britain’s economic outlook will keep improving, due to rising confidence.

Bank of England (BoE) Governor Mark Carney surprised investors towards the end of the week with a shift in stance. He said that the bank could be pressured into loosening UK monetary policy, if data does not improve.

While investors initially brushed over this remark due to recent stronger than expected UK data, comments from other BoE officials caused BoE rate cut bets to rise over the weekend.

BoE policymakers Silvana Tenreyro and Gertjan Vlieghe said over the weekend, that they would be willing to vote for a rate cut if data does not improve.

The Pound’s Monday plunge came in response to Vlieghe’s comments especially. Speaking to the Financial Times on Sunday, Vlieghe said:

‘Personally I think it’s been a close call, therefore it doesn’t take much data to swing it one way or the other,

I really need to see an imminent and significant improvement in the UK data to justify waiting a little bit longer.’

The comments signalled to investors that if this week’s data is disappointing, the BoE could cut rates soon rather than waiting.

Euro (EUR) Exchange Rates Strengthening as Markets Stabilise

The Euro (EUR) benefited from weakness in its rival the Pound (GBP) today. It pushed GBP/EUR lower, despite a lack of fresh support for the shared currency.

Recent Eurozone data has been decent. It continues to indicate that the Eurozone economy is showing signs of recovery, following a poor performance in 2019.

However, some data still shows weakness, such as this morning’s German wholesale prices stats. As a result, the Euro has been influenced more by strength in rival currencies, like the Pound and the US Dollar (USD).

Last week, the Euro was mixed amid concerns regarding US-Iran military tensions. However, as those tensions are appearing to lighten for now, the Euro is seeing steadier performance this week so far.

Pound to Euro (GBP/EUR) Exchange Rate Investors Focused on UK Data

Following comments from Bank of England (BoE) officials suggesting that a rate cut is possible unless UK data shows signs of improvement, this week’s datasets have the potential to be highly influential for the Pound to Euro (GBP/EUR) exchange rate.

Domestic trade, production and growth stats could cause Pound (GBP) movement today. Movement may not be sustained however, as data coming later in the week is likely to be highly influential as well.

Wednesday will see the publication of Britain’s December inflation rate results, which could be especially influential to BoE speculation. Friday will follow with retail sales results.

The Euro, on the other hand, is likely to be influenced by a combination of rival strength and Eurozone data.

French inflation data is due on Wednesday, followed by German inflation on Thursday and overall Eurozone stats on Friday.

If these impress investors they will soften European Central Bank (ECB) loosening speculation and boost Euro (EUR) support.

Any surprise developments in the Brexit process will remain influential for the Pound to Euro (GBP/EUR) exchange rate as well.

Josh Jeffery

Contact Josh Jeffery


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